How inflation affects your buying power
Let’s assume you are currently 35 years old and want to retire in 20 years time at the age of 55. You believe that, based on your monthly budget, you could easily survive on R10 000 per month. However, we understand that you will not ‘buy’ the same value for your R10 000 when you do retire in 20 years time, at age 55.
Let’s assume that we have an average inflation rate of 8% per annum over the next 30 years. The million dollar question you need to ask yourself is: How much income will you need to maintain a reasonable standard of living in retirement?
|YEAR||AGE||TODAY’S INCOME||REQUIRED INCOME|
|20||55||R10 000/m||R47 000/m|
|30||65||R10 000/m||R100 000/m|
|40||75||R10 000/m||R218 000/m|
|45||80||R10 000/m||R506 000/m|
To put the above into perspective, let’s go back to 1970 or even the 1960s:
• Salaries were as little as R120 per month.
• You could buy a brand new car for under R1 000.
• You could build a medium-size house for under R10 000.
• Bread and milk only cost a few cents.
This should give you an idea of the impact inflation can have on your purchasing power. To avoid being caught up in a catch-22 situation, make it your objective, goal and responsibility to plan ahead without any further delays.
June 4, 2016
Grant van Zyl